Apartment Finance Today

REGIONAL MARKETS

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Columbus Steadies

APARTMENT FINANCE TODAY • June 2008

City's strong economy and limited construction activity push rents up in 2008.

BY JERRY ASCIERTO

Columbus, Ohio — This city is poised for moderate rent and occupancy growth in 2008, as limited new construction and the steady economy here pace the market.

The market is still absorbing the overcapacity of units that arose when a building boom earlier in the decade caused vacancies to climb.

From 2003 to 2005, a staggering 5,051 new units were delivered in Columbus, sending vacancies to around 8 percent in 2006, according to market research firm Reis, Inc. The vacancy rate has been creeping down since then and is projected to drop 30 basis points this year to reach 6.6 percent by year-end.

Only 135 new units were delivered in Columbus last year, and just 78 units are forecast to come online by the end of the year, according to Reis.

Construction activity has been limited the last couple of years for a number of reasons. “Costs have gone up, and rents haven’t grown too significantly, even though the market is filled up,” said Mark Rohr, a senior adviser at Hendricks & Partners, a multifamily advisory firm. “I think most owners and developers are a little gun-shy right now. They’re just taking a deep breath; there isn’t much breaking ground right now.”

Rohr believes that this pause in construction activity will extend throughout the year as the market continues to absorb excess units and developers search for affordable land in the metro area. “During the singlefamily housing boom, there was a lot of down-zoning of infill spots for single- family condos,” said Rohr. “Most of the available multifamily land is outside of the city, far enough outside that you can’t get the rents to justify it.”

But there is some activity brewing in the city center. Developer Lifestyle Communities is planning a $25 million development for the central business district, called River South. The development will feature 120 one- and two-bedroom rental units among four buildings, each with a rooftop terrace. Rents will range from $750 to $900 a month. River South will also feature 76 one- and two-bedroom townhouse condominium units, with prices ranging between $125,000 and $250,000. The development was announced in March, and at press time, had yet to break ground.

National Community Builders is developing Jeffrey Place, a 41.5-acre mixed-use master-planned development in the Italian Village section of Columbus. The $400 million development will eventually feature 96 rental apartments; 1,104 for-sale lofts, townhomes, condominiums, and singlefamily homes; and more than 160,000 square feet of retail/commercial space. The first phase, consisting of 72 townhome and loft condominiums, was completed last November, and the second phase is under way.

Much of the development activity in Columbus is in the form of additional phases being added to established communities. Lifestyle Communities is adding an additional 130-unit phase to its Preserve Crossing development in the Columbus suburb of Gahanna. And Winther Investments is adding on to its downtown luxury development called Liberty Place, an eventual 12- building, 314-unit community with rents ranging from $995 to $1,995.

Market outlook

The slowdown of development, combined with a weak single-family market and the area’s steady job growth, should help the Columbus market to improve slightly in 2008.

Effective rents are expected to rise about 3 percent to reach $626 per month by the end of the year, according to Marcus & Millichap. “Most properties are running strongly in the mid-90s in occupancy now, and we’re seeing a lot of properties burning off concessions,” said Rohr.

Economic and population growth have rarely been a problem in Columbus. The population of Columbus has increased in every census survey recorded since 1830. In 2006, the city had 733,203 residents, with more than 1.7 million in the metro area.

The local economy is diverse, featuring the corporate headquarters of Commerce National Bank, five insurance companies including Nationwide Insurance, and Fortune 500 company Cardinal Health, as well as a growing technology sector.

Employment is expected to expand in 2008 for the fifth consecutive year, with employers adding 5,600 positions to the market, even as the statewide unemployment rate grows. The area also includes the Ohio State University campus, with a population of 60,000 students, the highest enrollment figure in the nation.

The job growth, population growth, and limited construction activity all point toward a positive year in Columbus. Multifamily owners, for the first time in years, are enjoying upward movement in rents and occupancies as the market works off its hangover from the construction boom in the early part of this decade.